Monday, November 5, 2012

DeMuth on Obamacare

He makes two points that I haven't seen expressed this well before, including by me despite 25 pages of trying:

A striking (and ominous) development in American politics in recent decades has been the emergence of government as an aggressive promoter of routine middle-class consumption... The tendency—already evident at the state level—will be to require generous, subsidized coverage of routine health and "wellness" services involving lifestyle, cosmetics, amenity and child development; of "preventive medicine" such as weight-reduction programs; and of "alternative medicine" such as massage and herbal therapies. At the same time (as already evident under Medicare) the treatment of infrequent but costly catastrophic diseases and conditions will be limited in the name of cost control, and the case-by-case discretion of doctors and other providers will be closely monitored and restricted.

This is, of course the opposite of the economic function of "insurance."

America is a large, wealthy, dynamic and heterogeneous nation. It is also the only major country that continues to maintain a health-care system with substantial elements of competitive supply, pricing freedom, patient choice, and diversity in approaching complex and uncertain medical problems

No, health care is not a stable good like asphalt, where the government can just come fix your potholes the same way now as they did 30 years ago. But "competitive supply, pricing freedom, patient choice" are already vanishing, and quashing diversity is the direct point of Obamacare.

You won't see all this crap until later, when the unelected bureaucrats implement the law.

Here's my analogy for the process:

A state is trying to pass a residential speed limit law. They could pass a law that says "The maximum speed in a residential area shall be twenty-five (25) mph" but the politicians are (1) afraid that the 35 mph lobby will be angry, (2)afraid the 30 mph lobby will be angry, (3) afraid the 20 mph lobby will be angry and (4) they have freakin' clue as to what the speed limit should be anyway.

So they pass a law that says "Everyone shall drive through residential areas at a speed not to exceed the Residential Speed Limit ("RSL"). The RSL shall be determined by the Residential Speed Limit Board ("RSLB"), which shall comprise one (1) representative from the Police Department, one (1) representative from the Department of Highways, and one (1) member of the public at large (to be appointment by the Governor's Committee on Public at Large Appointees). The RLSB shall have the power, at its sole discretion to raise or lower the speed limit in certain areas."

So then the residential speed limit ends up being 25 mph in one neighborhood, 45 in another, and changes from 32 to 27 when you back out of your driveway and turn the corner and nobody understands what happened.

It's not about what's good or bad. It's about what policies actually achieve those ends.

Do you think a 10 billion dollar federal weight loss program will work? Especially given the massive federal subsidies in place now for basically fast food? Look at the entirety of current federal policy towards food -- let's bet on its effect on American waistlines. (I bet +20 pounds).

Or, we get the usual result -- government simultaneously subsidizes more and less. As we subsidize energy production and try to regulate down energy demand.

KPres: nobody stops the private sector from engaging in weight-loss programs. The questions is, conditional on whatever the private sector is doing, should Federal government do more. The correct policy is simply to raise taxes on ( or stop subsidizing ) junk food. But since for political reasons, that doesn't appear feasible, this is the next best thing. The alternative is to do nothing and see the American waistlines continue to expand. Same logic was applied to anti-smoking campaigns back in the day and I think those are pretty effective. Sure, we've also raised taxes on smoking, but we only could do this politically because effective anti-smoking campaigns, including by the govt, raised awareness.

The point is that an "anti-obesity policy" would be at cross-purposes to other federal programs (food stamps, the food pyramid, agricultural commodity price floors, school lunch programs, etc...) I tell my public policy students that the only way we will see substantive waistline reduction would be the elimination of these latter policies, not an introduction of former.

John Brennan: the elimination of these policies can only happen if politics allow it to happen. But how is that going to come about? Federal anti-obesity programs can raise awareness and change the politics. For example "we tried to persuade and educate voters not to eat tons of potato chips, but it didn't work as well as we want. Let's raise potato chip taxes" is much more persuasive than "let's raise taxes".

ObamaCare is not the biggest issue in the election. If ObamaCare stays it will morph into something that looks a lot like single payer within twenty years. If ObamaCare goes, the US will explicitly adopt single payer within twenty years. If Romney wins and eliminates the employer deduction for health care plans the US gets to single payer within five years of that change coming into effect.

The real issue is how the burden of the budget deficit will be divided between the poor, the middle class young, the middle class elderly and the wealthy.

I've loved all your recent health care work. My one issue is that the ACA will not be repealed. I see almost no chance the republicans take 60 seats in the senate. Could we instead discuss what changes (malpractice, removing supply side distortions, paper work mitigation) we could potentially reform within the framework of the ACA?

The 800 lb gorilla in this discussion is EMTALA, the law that requires pretty much all acute care hospitals to provide care for emergencies and active labor patients. This is an unfunded mandate; it has nothing to do with cosmetics and amenities and herbal treatments.

EMTALA worked when we had 5 million uninsured, but the system breaks down north of 50 million uninsured. The ACA is a work in progress, but short of repealing EMTALA and allowing people to die some form of remedy is in order. It has to do with moral hazard and the squeamishness of letting people die from treatable diagnoses.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.

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About Me and This Blog

This is a blog of news, views, and commentary, from a humorous free-market point of view. After one too many rants at the dinner table, my kids called me "the grumpy economist," and hence this blog and its title.
In real life I'm a professor at the University of Chicago Booth School of Business, a Senior Fellow of the Hoover Institution, and an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!